BlackBerry Deal With Fairfax Plagued By Financing Woes

BlackBerry’s future has been hanging in the balance for months, and now it looks like Fairfax Financial, the only one to officially make a bid for the company, may not be able to get the financing necessary to complete it. Analysts have been speculating that financing would be a problem for this deal for some time.

Financing a BlackBerry buyout

In September, Fairfax signed a tentative agreement with BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) for a $9 per share offer subject to a due diligence and go-shop period, both of which end on Monday, Fairfax and the consortium it’s leading said they would make a definitive agreement by 5 p.m. on Nov. 4, so the clock is ticking.

This morning Serena Saitto, Jodi Xu and Hugo Miller of Bloomberg report that sources have indicated that the buyout group has get to arrange the financing for the deal. Fairfax is being advised by Bank of America Corp (NYSE:BAC) and Bank of Montreal (NYSE:BMO) (TOR:BMO), which have reportedly approached other lenders for assistance financing the bid for the company. Other lenders have apparently denied the buyout group financing because BlackBerry has posted losses in five of the last seven quarters. Credit Suisse Group AG (NYSE:CS) (VTX:CSGN) was one of those said to have been approached for financing, but the bank reportedly turned it down after it found a lack of demand among loan investors.

Will another bidder come through for BlackBerry?

On Friday it was revealed that another potential buyout group—Cerberus Capital Management along with co-founders Mike Lazaridis and Doug Fregin—could make an official offer for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB). Bloomberg’s sources said QUALCOMM, Inc. (NASDAQ:QCOM) was considering joining that group.

The chip maker is said to be reviewing BlackBerry’s finances before deciding whether to join the group with Cerberus, Lazaridis and Fregin. QUALCOMM, Inc. (NASDAQ:QCOM) makes most of its profits from patent licensing, so the addition of BlackBerry’s patent portfolio might make sense.

The timing of a BlackBerry deal

The next few days will be crucial for the future of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) Fairfax hasn’t said what it would do if it can’t line up financing for its offer. The tentative agreement doesn’t include a penalty for Fairfax to walk away from the table. However, BlackBerry would have to pay a breakup fee of $157 million if it walks away from Fairfax before the Nov. 4 deadline. If Fairfax does come through with a definitive agreement in time and BlackBerry walks away after that agreement was made, then the breakup fee rises to approximately $262 million.